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Dow surge doesn't signal recovery, majority says

Rochester Business Journal

March 15, 2013

A slight majority—53 percent—of respondents to this week’s RBJ Daily Report Snap Poll says the stock market’s recent surge does not necessarily signal a strengthening economic recovery. The plurality of readers, however, are optimistic about the prospects for the nation’s economy in the next 12 months.

Last week the Dow Jones Industrial Average topped its previous nominal record close, set in 2007, and the string of new high marks continued into this week.

The Dow peaked at 14,164.53 on Oct. 9, 2007, but plunged to 6,547.05 on March 9, 2009, during the Great Recession. The blue chip index closed at 14,253.77 last week Tuesday and finished the week at 14,397.07. On an inflation-adjusted basis, however, the Dow remains some 10 percent below its peak in January 2000.

Meanwhile, the government said last week that the U.S. unemployment rate had fallen to a four-year low of 7.7 percent, with 236,000 jobs added in February.

A plurality—some 37 percent—of readers says the Dow’s surge to some degree is a sign of a strengthening economy, and 10 percent say it very much signals an economic upturn. But 53 percent say it does not indicate improvement very much or at all.

Readers’ attitudes are similar to when the same question was asked after a surge in mid-October 2010. In that poll, 39 percent of readers said the surge was a sign of a strengthening economy, and 7 percent said it very much signaled an upturn. But 54 percent said it did not indicate improvement very much or at all.

Forty-four percent of readers now are optimistic, however, about the prospects for the U.S. economy over the next 12 months, compared with 37 percent who are pessimistic. The remaining 20 percent are neutral.

Roughly 570 readers participated in this week’s poll, conducted March 11 and 12.

Some say the stock market's surge reflects a strengthening economic recovery. Do you agree?
Very much: 10%
Somewhat: 37%
Not very much: 35%
Not at all: 18%

How do you personally feel about the prospects for the U.S. economy over the next 12 months?
Very optimistic: 8%
Somewhat optimistic: 36%
Neutral: 20%
Somewhat pessimistic: 29%
Very pessimistic: 8%

COMMENTS:

The stock market surge is a flight of capital from government bonds to something that might bring better returns. With U.S., Japan and European governments devaluing their currencies, assets are a better place for your capital. Others are betting on real estate again. This is the start of an inevitable surge of inflation that politicians need to pay off the huge borrowing of the last few years. So if you were stupid enough to save dollars, its value is going down at an ever increasing rate, while the Fed holds down interest rates on your savings. (In technical terms, you are getting screwed by your government again.)
—Dennis Ditch, president, Delta Square Inc.

I believe this is the calm before the storm. There have been news reports of executives selling large amounts of their stocks/options. I have feeling they know something we don't and are cashing out.
—Mike Knox

An example of the economy not doing well is that JPMorgan Chase & Co. just laid off 15,000 workers. As companies adjust to Obamacare, there will be more layoffs.
—Diane Marcus

While I am cautiously optimistic, it's not because of the market. The "market" indicates growth and success of a small number of very large companies. These companies have recorded record profits at the expense of both hiring and worker compensation. Until the overall weakness in the employment numbers goes down more, the Congress and POTUS stop their constant infighting and resolve their economic policy differences and until the government gets tough with big banks—sending people to jail for fraud and closing down offenders that have been proven to have committed fraud, money laundering and other outrages, we are still on rocky ground. A single natural disaster, terrorist attack or outside entity could put us right back into negative territory pretty fast.
—Lee Drake, OS-Cubed Inc.

There are still too many unemployed and underemployed, many not counted in the government's numbers. Some of us re-employed in the last few years make a fraction of income from a decade ago. This economy really hurts. The stock market gains are great for some, though I do not see enough hiring or banks pumping their loan money into the economy.
—Tom Smith, Canandaigua

The economy is where things are now. The stock market is where investors see things going. This could be because investors think things are getting better or every other option is worse. If you aren't rich enough to invest, the only important thing is the economy. If you invest wisely, you don't need to worry about the economy.
—Bill Lanigan

The flood of liquidity created by the Federal Reserve along with very low interest rates on bonds and CDs leave no choice for investors but to go into the stock market (or commodities) to get any kind of a decent return. The U.S. is awash in newly printed money. The stock market today is kind of like a big sponge soaking up all the water. What I want to see are wages increasing, banks lending, consumer confidence rising, and business investing in new buildings and equipment. We are not there yet.
—George Thomas, Ogden

The economy is adding significant numbers of private-sector jobs, too. Roughly 240,000 last month; 2 million in the past year; looking good for future growth.
—Bill Mathews, SUNY Geneseo

(I’m) concerned about signs of inflation and extent of government "interference" in my life.
—Gene Tonucci, Allen-Bailey Tag & Label Inc.

This move is reflecting the huge amounts of liquidity that the Fed is putting into the market, referred to as QE-3, or quantitative easing. There is $85 billion being added monthly. This does not encourage economic investment but asset investment. With rates so low, they do not want to fund high-risk investment. So money flows to highly liquid securities like the Dow 30 and dividend paying issues.
—Dom Pullano

There is lot of cash out there. Fixed income investments are returning nearly nothing and at high risk of capital losses when interest rates rise. Real estate, although rebounding, is still below historic returns and a scary place to be for investors after the 2007-08 crash. Europe remains weak, and China has slowed, making those markets relatively less attractive. The low value of the dollar is also helping the stock market. Therefore stocks are the safest bet at this time. The economy is not declining, but performance remains too weak to drive market prices.
—Jim Weisbeck, Bloomfield

Our country, and our citizens, have a spending disease that has been diagnosed. The solution is very obvious, but nobody is treating it. How much longer will our country be able to ingest this poison of "buy, buy, buy" that has been so enveloped into our culture?
—John Paul Mlynar, Honeoye

The stock market is being propped up by the Federal Reserve and virtually free money. We should all try to take advantage of the market but be very careful when the sky falls, which may happen later this year.
—Allen Driscol, Rochester

Markets go up and markets go down; that is what markets do. In my view, this "surge" has much more to do with trillion-dollar deficits, and the Fed pumping $85 billion per month more into QE forever than improving economics or an improving economy. All that liquidity has to manifest itself somewhere. The test will be when and if the president and Congress begin deficit reduction or when and if ever the Fed stops printing money. I fear that when either or both of those two things happen, look out below!
—Jay Birnbaum

The stock market and the real economy have become so disconnected it’s like being at a party where a group of people playing a board/card game over there and the rest of us are just sitting on the couch watching hoping to get a laugh. It’s really just for the fund managers and traders to play their game. Sure it helps our 401(k), but the real economy needs manufacturing to create wealth and jobs. Many of these stocks grow by cutting jobs and costs so stock value will rise (a.k.a; the KPS, or Kodak Profitability System). An emerging energy industry like that which exists in Pennsylvania, Ohio and West Virginia wouldn’t hurt New York State, either.
—Karl Schuler